Hersha Hospitality Trust (HT) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Hersha Hospitality Trust first-quarter 2016 earnings conference call. Today's call is being recorded. (Operator Instructions)

At this time, I would like to turn the conference over to Pete Majeski, Manager of Investor Relations and Finance. Please go ahead, sir.

Thank you, Lauren, and good morning to everyone participating today. Welcome to Hersha Hospitality Trust's first-quarter 2016 conference call.

Today's call will be based on the first-quarter earnings release, which was distributed yesterday. If you have not yet received a copy, please call us at 215-238-1046. Today's call will also be webcast. To listen to an audio webcast of the call, please visit www.hersha.com within the Investor Relations section.

Prior to proceeding, I would like to remind everyone that today's conference call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties, and other factors that may cause the Company's actual results, performance or financial positions to be materially different from any future results, performance or financial positions. These factors are detailed within the Company's press release, as well as with the Company's filings with the SEC.

With that, it is now my pleasure to turn the call over to Mr. Neil Shah, Hersha Hospitality Trust's President and Chief Operating Officer. Neil, you may begin.

Thank you, Pete. Good morning and welcome to all of you joining us on today's call. With me this morning are Jay Shah, our Chief Executive Officer, and Ashish Parikh, our Chief Financial Officer.

By now you have heard from several of our peers. The first quarter was very challenging. A highly uncertain macro environment led to recessionary fears that dampened corporate confidence and reduced transient demand in lodging. The Easter shift and weather patterns accentuated this weakness. Ultimately supply outpaced demand for the quarter.

Our transient-oriented portfolio was particularly vulnerable to this environment and renovations at some of our largest hotels resulted in a tough quarter for HT, particularly in light of a 9% RevPAR growth comp to last year's first quarter.

The macro environment has meaningfully improved and our portfolio performance accelerated throughout the quarter. The first quarter represents only 15% of our EBITDA for the year, and our disruptive renovations are now complete. We are encouraged by our performance in April. Each of our markets have strong convention calendars ahead, and our portfolio has easier comps throughout the remainder of the year.

As Ash will discuss later in our call, we have supplied a more conservative outlook for full-year EBITDA. But we do believe that the worst is behind us and an opportunity to outperform our reduced expectations remains feasible.

I will start this morning's call by reviewing our portfolio's operational performance. I will then discuss our transformative portfolio sale with Cindat, and then touch upon how we are thinking about capital allocation for the rest of this year.

In the first quarter our comparable portfolio, clustered across six urban gateway and destination markets, delivered 0.6% RevPAR growth to $141.58.

As we discussed on our year-end call in February, we undertook brand-mandated refreshes at five of our larger consolidated properties, specifically our Courtyard in Brookline, Massachusetts and four of our Hampton Inns in Manhattan, which negatively impacted our performance. Throughout this cycle, the early timing of our capital investments has been very effective and we've elected to conduct the majority of the portfolio's capital projects during the seasonably slow first quarter to minimize disruption.

Excluding the impact from these renovations, our comparable portfolio reported 2.7% RevPAR growth to $144.50, driven by 2.4% rate growth to $184.92, and a 25 basis point improvement in occupancy to 78.1%.

Our performance to start 2016 is noteworthy considering the tough comp to first-quarter 2015, when our comparable portfolio reported a 9% RevPAR growth.

Hotel EBITDA increased approximately $1.9 million, or 6.3%, to $31.3 million as rate-based growth, combined with strong demand in Washington, DC and on the West Coast, drove performance despite the negative top-line impact from the aforementioned renovations.

Let's review what transpired in each of the markets in the first quarter.

The West Coast is our biggest contributor to Q1 EBITDA. Our comparable portfolio reported 6.5% RevPAR growth to $162.16.

In Los Angeles, our Courtyard LA Westside leveraged strong market conditions and citywide compression resulting in a 22.1% RevPAR increase and a $2.1 million in-hotel EBITDA. The Courtyard continues to benefit from the growth of the corporate and technology market in nearby Playa Visa and Marina del Ray. Entering the year, demand from IT and media companies in the submarket allowed us to increase [BT] rates by as much as 20%.

Our strong performance in Los Angeles more than offset a challenging quarter in San Diego. The convention calendar meaningfully improves in San Diego in the coming quarters and will allow us to sustain strong growth from Southern California for the remainder of the year.

In Northern California, our TownePlace Suites Sunnyvale was aided by February's Super Bowl in nearby Santa Clara. The hotel reported 11.6% RevPAR growth and a 250 basis point improvement in margins to 52.3% for the first quarter.

Our newly acquired Sanctuary Beach Resort posted 6.7% RevPAR growth as rates improved 8.1%. Moving forward, we expect to pull revenue and asset management levers at the property to best leverage the hotel's irreplaceable beachfront location, as well as the inherent corporate demand from nearby San Francisco and Silicon Valley. Our Hyatt Houses in the East Bay continue to build on strong corporate transient and extended-stay demand.

Our comparable urban Washington, DC cluster delivered a 9.4% RevPAR increase to $169.91, as rates increased 8.2% and occupancy rose 83 basis points to 77.6%, impressive growth considering a 10% comp in the first quarter 2015.

The Capitol Hill Hotel, where RevPAR increased 17.8%, and our Hampton Inn DC benefited from strong convention activity. These two hotels contributed a combined $2.2 million in hotel EBITDA in the first quarter.

In our first quarter of ownership the Ritz-Carlton Georgetown reported RevPAR of $341.80, growth of about 2%, and contributed approximately $3.8 million in revenue. The high quality and recently renovated property is expected to benefit from our aggressive revenue management and improved (inaudible) strategies, as well as the repositioning of the SMB and spa programming.

We expect many of our revenue and management tactics at the St. Gregory Hotel and the continued ramp-up of the Hilton Garden in M Street to contribute more meaningfully to our outperformance in Washington in the coming quarters.

In Philadelphia, the Rittenhouse is off to a terrific start in 2016. The hotel reported 26.6% RevPAR growth as a result of a 13% improvement in rate. Margins improved 960 basis points in the quarter.

Performance at the property has been driven by aggressive revenue management positioning, which is focused on increasing bar and corporate group business, as well as strengthened L&R relationships.

Since our acquisition of the Rittenhouse the hotel has remained the RevPAR leader in Philadelphia, increasing RevPAR index from 129.2 in 2012 to 161.1 in the trailing-12-month period ending in March. We expect the strong performance of the Rittenhouse to continue given our concentrated revenue management strategies, the spa's continued ramp, a new leased-out restaurant, in addition to a very strong citywide calendar in Philadelphia, highlighted by this year's Democratic national convention in late July.

We have executed property-level management changes at the Hampton Inn Philadelphia, which has underperformed our expectations for several quarters, and will more meaningfully contribute to strong performance from Philadelphia moving forward.

In Manhattan, excluding the renovation impact at four of our Hampton Inn hotels, our portfolio delivered 3.8% RevPAR growth to $149.32. Occupancy improved 451 basis points to 88.2%, reflective of the market's 6.8% increase in demand during the first quarter. However, rate declined 1.5% to $169.29, as operators lacked pricing power due to the impact of new supply.

For the ninth consecutive quarter, our newer, purpose-built rooms-focused asset outperformed, beating the greater Manhattan market by 550 basis points. At our Hilton Garden Inn in Midtown East, increased group business has allowed the hotel to benefit from internal compression and drive premium rates. As a result, the property delivered 9% RevPAR growth as ADR increased 8.7%, contributing approximately $1 million in EBITDA.

Our other Manhattan Hilton Garden Inn, the very well located Hilton Garden Inn Tribeca, also was an outperformer in the first quarter, reporting 15.5% RevPAR growth, as the property continues to benefit from both market growth in Tribeca, in addition to the renovations undertaken last year. We believe the property-level management and strategy changes at our JFK hotels and two of our Downtown Hampton Inns will also bolster New York City performance in the coming quarters.

In Boston we faced a very difficult year-over-year comparison to first-quarter 2015, when we registered 25.3% RevPAR growth. In addition, we removed our largest asset in the market, the Courtyard Brookline, during the first quarter. Excluding renovations, our Boston portfolio reported a 6.5% RevPAR decline, entirely driven by occupancy loss, as rates increased 4.2%.

Occupancies at three of our Metro properties in Boston, the Residence in Norwood, the Residence in Framingham, and our Hawthorn Suites Franklin, decreased significantly in the first quarter, as these properties had benefited from significant winter-storm-related business last year.

Our newly removed Brookline Hotel and the very strong convention calendar in Boston in the coming quarters give us confidence that Boston will remain one of our higher growth markets.

In South Florida we again faced challenging comparisons to first-quarter 2015 when we registered 7.9% RevPAR growth. Softer demand in Miami has been a function of the strong US dollar, the impact of new supply and, particularly in Miami Beach, the closing of the Miami Beach Convention Center until December 2017, which all combined to drive our portfolio's 3.6% RevPAR decline in the first quarter.

While our Cadillac Courtyard Miami Beach was the portfolio's largest EBITDA contributor in the first quarter at $3.5 million, the hotel reported an 8.9% RevPAR decline. The property has been negatively impacted by the delivery of approximately 600 new rooms in Miami Beach over the previous six months, as well as the relocation of several large citywide events due to the Convention Center's renovation.

In Coconut Grove, our Residence Inn continues to benefit from comprehensive renovations completed last year, as well as strong demand. In the first quarter the property reported 19.5% RevPAR growth, contributing over $1.2 million in hotel EBITDA, and a 670 basis point improvement in EBITDA margin.

With regard to international demand in our Miami portfolio, we actually saw a 5.8% increase in the overall international contribution to total room revenue to 17.3%, driven by increased share from travelers from the UK and the Netherlands.

On the other hand, contribution to total international room revenue from South America declined 8.7%, due to decreased contributions from Brazil, Argentina, and Columbia as a result of the stronger dollar and, in the case of Brazil, additional headwinds from domestic economic weakness and increased taxes on citizens traveling abroad.

Miami Beach will continue to feel the headwinds of a strong dollar and the closing of the Miami Beach Convention Center across the year. But we are expecting stronger performance from the Parrot Key Resort in Key West, which should benefit from easier comps in the coming quarters.

Transitioning now to investments, during the first quarter, we closed on two high quality acquisitions which helped to expand our Northern California and urban Washington, DC clusters. In late January we closed on the aforementioned oceanfront Sanctuary Beach Resort on Monterey Bay, and in mid March we closed on the Hilton Garden Inn in M Street at the confluence of DuPont Circle, Foggy Bottom, Georgetown, Downtown, and the West End in Washington, DC.

Both hotels are in great locations within high-growth submarkets and possess the opportunity to meaningfully improve operations through thoughtful and aggressive asset revenue management. These assets are expected to contribute more than $9 million to our EBITDA, with limited capital expenditures and no operational disruption in 2016.

With regards to our New York City JV transaction with Cindat, we are in the closing process and expect to announce closing imminently. The joint venture sale of seven limited service hotels in Manhattan for $571.4 million, or $526,000 per key, represents a trailing 5.4% economic cap rate and an EBITDA multiple of 16.8 times based on 2015 results. HT is selling the seven hotels at an 81% premium to the Company's blended purchase price of $316.1 million, or $291,000 per key.

The transaction is structured with Cindat as the preferred joint venture partner, holding a 70% ownership stake, with Hersha retaining a 30% equity interest. Cindat is backed by China Cinda Asset Management Company and Taikang Life Insurance, two large, globally active institutional investors from China. We are delighted to be in a long-term partnership with these sophisticated investors and expect to pursue additional transactions with our new partners across the coming years.

On a pro forma basis, the sale materially reduces our EBITDA exposure in New York City from approximately 43% in 2015 to 25% consolidated EBITDA in 2016. While we are trimming our exposure to the market, our long-term belief in New York City remains steadfast, given the scarcity and value of the City's real estate, as well as the City's preeminence as a financial, cultural, and technological hub.

We will continue to fully own 10 high quality, well located hotels in diverse submarkets throughout New York City, totaling approximately 1,400 rooms, including the Hyatt Union Square, three Hilton Garden Inns, two independent boutique hotels, two Hampton Inns, one Holiday Inn Express, and one Sheraton.

With regard to the JV sale's proceeds, based upon the sales price we expect to net between $350 million and $360 million in cash proceeds from the sale.

Our previously announced acquisitions in Washington, DC and Northern California are considered reverse like-kind exchanges for a portion of our capital gains. Of the cash proceeds, $110 million will be held as additional like-kind exchange under Internal Revenue Code Section 1031.

We will have until December to deploy these proceeds to avoid a tax burden related to our significant gain from the transaction. If there are not acquisitions that meet our criteria -- accretive to cash flow, accretive to the portfolio's growth rate, and higher quality assets in our core markets, we can also issue a special dividend in stock or cash to avoid capital gains. We intend to utilize approximately $253 million to redeem our Series B preferred shares, as well as pay down the line of credit.

Our ability to successfully execute this transformational sale with a large and sophisticated offshore buyer highlights our capital recycling discipline and unique ability to monetize high-yielding, stabilized assets. Since 2012 we've recycled more than $1 billion of capital from mature hotels into higher growth, higher quality acquisitions.

Prior to passing the call to Ash, I want to briefly discuss capital allocation as it relates to share repurchases and hotel dispositions.

First, regarding our share repurchase activity, we continue to believe opportunistic share repurchases during periods of capital market dislocations are an attractive use of available capital and a driver of share value, given our absolute return philosophy, and demonstrate our commitment to total shareholder returns. Year to date we have acquired 506,000 shares totaling $10.1 million, at an average price of $19.89. We have approximately $63 million remaining in our current $100 million share repurchase program.

While we do not have a rigid target in terms of when we repurchase shares, we are active when shares trade at a 30% to 35% NAV discount, compared to last year when our buyback hurdle was in the 20% to 25% NAV discount range.

With increasing operating risk in our hotel portfolio today, we remain sensitive to reducing financial risk on our balance sheet. We are in the process of marketing for sale nine noncore suburban assets remaining in our portfolio. We expect the sale of these properties to further improve the quality of our portfolio and narrow the portfolio's geographic focus to urban and destination markets. The hotels are older hotels in our [core] portfolio, with growth profiles lower than our hotels in the core portfolio.

The dispositions of these nine properties will most likely take place in the second half of 2016, and will generate approximately $150 million to $200 million in net proceeds, which we expect to use to further reduce debt and fortify the balance sheet.

This concludes my remarks. I'll turn the call over to Ash.

Thank you, Neil. Good morning.

I'll focus my commentary on our portfolio's EBITDA margin performance, first quarter and forecasted CapEx spend, trends we're seeing in the second quarter. And I'll spend the disproportionate amount of my presentation on our updated full-year 2016 outlook, taking into account the anticipated result of the sale of the seven assets and the formation of the Cindat joint venture and how the venture impacts our consolidated operating and financial results.

As discussed, our young, geographically focused hotel portfolio delivered hotel EBITDA of $31.3 million, 6.3% growth compared to first quarter 2015.

With regards to margins, excluding renovations we reported comparable portfolio GOP and EBITDA margins of 42.4% and 30.6%, respectively, which were relatively flat compared to last year's margins. EBITDA performance was quite disparate across the portfolio as a result of challenging comps in several of our markets. However, we remain confident in our ability to maintain our high absolute margins and to continue driving margin growth through a combination of ADR growth and operating efficiencies as we enter the seasonally stronger quarters of 2016.

Our West Coast cluster of assets reported hotel EBITDA of $8.8 million in the first quarter, an increase of 12.6%, the result of strong fundamentals, particularly in Los Angeles, which allowed us to drive 13.5% ADR growth.

In the first quarter the West Coast delivered 28% of our consolidated EBITDA compared to 23% in last year's first quarter, the result of our strategic decision to acquire high quality hotels in dynamic markets such as North California where we purchased two assets in the last eight months. The West Coast portfolio also delivered on the margin growth front, reporting 120 basis points of margin improvement, to 42.8%.

In Washington, DC our combined DC urban and metro portfolios reported EBITDA of $5.7 million, growth of approximately 14%, aided by aggressive revenue and asset management strategies that positively benefited rate and was supported by market demand that increased 3.6%. In the first quarter, our Washington, DC portfolio contributed 15% of consolidated hotel EBITDA compared to 10% in the first quarter of 2015. [Flows through] that exceeded 55% helped to drive a 180 basis point increase in EBITDA margins to 28.4%.

Our Manhattan portfolio reported $5.7 million hotel EBITDA during the first quarter, a decline of 4.9% as renovations at four of our Hampton Inns negatively impacted results. Excluding these renovations, we reported GOP margins of 41% and EBITDA margins of 22.6%, growth of 120 basis points and 40 basis points, respectively.

We have realized significant cost savings across our Manhattan portfolio, which is benefiting margin performance. A couple of examples of this are undistributed expenses for the portfolio declined 40 basis points, or $1.43 on a per-occupied-room basis, while wages as a percentage of revenue declined 70 basis points, [closing] to $1.40 decrease in cost per occupied room. We've also seen significant cost savings from energy management initiatives such as LED lighting and guest room energy management systems rolled across our Manhattan portfolio.

We'll transition now to CapEx. As we continued to enhance the guest experience and keep our hotels in tune with business and leisure travelers' tastes and preferences, we took on the disruptive guest room refreshes at Courtyard Brookline and four Hampton Inns in Manhattan. These renovations totaled $15 million in the first quarter, with work extended into early April. While we strategically undertake disruptive CapEx work in the slowest part of the year, these five particular hotels are especially productive year round, and as a result were very disruptive to the rooms business and operating results.

Looking ahead, we will have a handful of less disruptive renovations during the second and third quarters at hotels such as the Duane Street Hotel, the St. Gregory, and the Hyatt Union Square. But these primarily consist of exterior work and food and beverage enhancements.

It is important to note that these renovations are not expected to have a significant impact to the room side of the business. And for full year 2016 we continue to target consolidated CapEx in the $25 million to $27 million range.

With regards to our balance sheet, as Neil discussed, we plan to utilize a large part of the proceeds from the seven asset sale to redeem our Series B preferred shares and pay down our revolving credit facility, which will bring our debt plus preferred to EBITDA ratio down by at least a full turn.

By redeeming the Series B preferred, which carry an 8% coupon, we will save approximately $5 million in dividend payments in 2016, and $9.2 million on an annual run rate basis. So it should be very accretive to our cash flow going forward. With the completion of the sale, our debt plus preferred to EBITDA is targeted to be approximately 5.5 times by year end. And our goal is to be below 5 times by the end of 2017.

Our fixed charge coverage ratios remain very strong and we're estimating our coverage to be in the range of 2.7 times by year end 2016.

As of March 31, our total consolidated debt had a weighted average interest rate of approximately 3.65% with a weighted average life to maturity of approximately 3.4 years, assuming no extension options are exercised.

Overall, our balance sheet stands to be in great shape to provide us ample flexibility to carry out our business plans.

Moving now to our Cindat JV, I want to briefly mention the debt associated with the venture, as well as what we expect in terms of EBITDA, given our 30% ownership of the JV.

In total, the JV is expected to take on $335 million of debt. And of this amount, $285 million was provided by a syndicate of international and domestic financial institutions at LIBOR plus 245. There was also a mezzanine piece totaling $50 million that we're expecting to place in the portfolio at a rate of LIBOR plus 9.

Finally, Hersha provided $37 million of preferred equity at a fixed rate of 9%

In 2016, we'll be losing approximately $27 million to $28 million of EBITDA from the sale in our consolidated results, and expect to receive between $9 million and $10 million in EBITDA, which will be reflected within our unconsolidated joint venture results.

In addition to the removal of this EBITDA from the sale, we've accounted for the year-to-date results and adjusted figures for potential volatility during the back half of the year in arriving at our new EBITDA guidance range.

Our updated view for the rest of the year continues to anticipate comparable RevPAR growth of 4% to 6%, with 50 to 75 basis points of margin growth. Our updated adjusted EBITDA is now in the range of $175 million to $185 million, with FFO per diluted share of between $2.48 and $2.69 per share.

In formulating our guidance, it's important to note first-quarter contribution in terms of revenue and EBITDA are by far the least meaningful of any of our quarters due to the seasonality.

Our results for the remainder of 2016 will also exclude seven of our Manhattan assets, of which three were under renovation during the first quarter. When we exclude these seven assets, our first-quarter Manhattan RevPAR increased 5.9%, and we anticipate better growth for our remaining Manhattan assets for the remainder of the year.

In terms of our portfolio's performance quarter to date in April, we continue to see solid growth in several of our markets, especially the West Coast, Washington, DC, Philadelphia, and Boston, which were up 8.6%, 5.2%, 11.2%, and 4%, respectively.

As we've done in every quarter, we'll continue to monitor our portfolio performance and update our guidance based on any further acquisition or disposition activities.

So that concludes my portion of the call. We can now proceed to Q&A, where Jay, Neil and I are happy to address any questions that you may have. Operator?

Thank you. (Operator Instructions) Anthony Powell; Barclays.

If you could, could you give us a quick update on how things are tracking so far in 2Q?

So just to reiterate again a couple of the markets that we're seeing strong results for the quarter -- as I mentioned, leading the pack is Philadelphia at about 11.2% growth. West Coast is at 8.6%. Washington, DC is at 5.2%, and Boston is around 4%. Markets where we have been negatively impacted by Easter -- our New York comparable portfolio is down about 1.4% in the month of April, and Miami and South Florida are down about 6.7%.

So some very good results in most of our markets, and Easter shift just hitting us a little bit in New York and South Florida.

Got it; okay. Also, in you release you mention that you remain focused on executing revenue management, international mix, and ecommerce strategies. Could you give more detail on what you meant by that? And are you changing any kind of strategies in those buckets?

Anthony, based on the international side, a lot of our international strategy has been in identifying the countries that are still traveling, are not as impacted by the strong dollar. And New York City is a good example of a market where we've discussed how the Eurozone was a real drag on international demand last year for us, and so we had shifted a lot of our focus to the UK and to Asia.

This year we're actually starting to see a rebound in Eurozone travel and are expecting positive momentum to continue throughout the year, particularly from Italy and from Spain. We've seen weakness in the UK and Canada, but are seeing real pickup in contribution from China. We've been talking about China as an industry for years, but it's really starting to build real momentum. China, in our list of New York City contributing countries, used to be 2 or 13. This quarter in the Q1 was the third-largest contributor to our business.

And so, it's targeting the right mix and the right countries. In Miami we've been preparing for impact from South America all across last year, as we've discussed in these calls. It didn't have a particularly strong impact on the first half of last year, but as the year continued it really did build and we discussed in our prepared remarks how much of a decline there was in South America.

But there's been a significant increase from -- we mentioned in my remarks about the UK and Netherlands. But we're also seeing increased contribution from the Middle East. We've seen a lot of -- Qatar added a flight to Miami, as well as Turkey. There's now a nonstop flight from Turkey, as well as from Austria, from Vienna.

And so we're just targeting kind of where that international business is coming from and trying to approach those customers through both our FIT channels as well as our ecommerce channels.

Revenue management strategies -- as you know, we're very close to the ground on all of our revenue management activities. And across our markets we have to respond to pretty short-term booking windows by making changes and testing new strategies. In New York we are in some cases taking much more L&R than we may have last year as a way to protect from being completely vulnerable to transient mix.

We continue to try to reduce OTA exposure generally speaking, but in some cases we're increasing it (technical difficulty). So that's where we see that there's a demand picking up from other channels.

It's hard to describe it without going asset by asset, but we're on it and very focused on it.

Thanks a lot.

Shaun Kelley; Bank of America.

Jay, I apologize. I missed the very first part of your comments. But I think what we're trying to kind of understand this morning is, it does sound like your core underwriting, as we just sort of strip out all of the movements with the Cindat JV, is a little bit lower for the year. So could you help us understand the kind of decrease in guidance? How much comes from just worse disruption this quarter and maybe into April than you expected on renovations? And then how much do you think is a lower core underwriting on what you're seeing?

Shaun, this is Ashish. When you look at sort of the gap, we lose roughly $18 million of EBITDA from the sale of the seven. And if you take the midpoint of our EBITDA range, that's about a $5 million decrease from what we had put out the beginning of the year, give or take $2 million is from the first-quarter result, renovation impact, just softer market conditions as Neil described.

And then we built in about $3 million of cushion for the rest of the year, or reduced our outlook by about $3 million. And that's primarily from the standpoint of just not knowing how the transient demand is going to be picking up, but having currently a better outlook for the remainder of the year than we did first quarter. Feel more constructive now that we're past the worst months of the year. But overall we thought it prudent to keep a little bit of cushion in the guidance.

And, Ashish, maybe just to follow up. Like what specific markets caused the softness in Q1? And then what are you looking to get a little bit more confident in the outlook?

Sure. The three markets that were difficult in the first quarter for us, one was Boston. As Neil mentioned, Boston had 25.3% RevPAR growth in our portfolio last year and 760 basis points of margin growth. So it was just a blowout quarter, and a lot of that was demand from conventions and things, but a lot of it, probably a majority of it, was also driven by the fact that they had 120 inches of snow and it was almost like a SuperStorm Sandy for that region. There was a lot of displaced residents that had to stay in hotel rooms, and stranded passengers at airports. So that was a challenging market but certainly it's turning around, and has turned around in April.

Miami was weaker than anticipated and I guess our outlook for Miami for the remainder of the year is that it will be more challenging than we had anticipated, with the closure of the Convention Center and the softness in international coming from South America as well as just the supply (inaudible).

I think our outlook in New York remains the same. And it's better, certainly, for the back half of the year than the first quarter.

But those were really the markets that impacted us the most the first quarter.

Okay, that's helpful. Thank you very much.

Ryan Meliker; Canaccord Genuity.

I had a few questions. I wanted to start with the Cindat transaction. Obviously you in your guidance announced an expectation or at least an assumption that it will close on Sunday. So it sounds like you guys are pretty close. I know when you put out your initial announcement for the transaction you had said it would close by the end of March. And when you put out your earnings in late February you had said you were expecting it to close in April, and now it's up to May. I understand that's a challenge associated with some of the foreign capital providers. But what's the certainty that it's actually going to close in the next week or so?

And if I recall correctly, when the deal was initially structured you only had a little over $6 million in down payment on the transaction. Has that number increased over the past couple of months? Thanks.

Ryan, just to get it started at least, we are in the closing process on the transaction. And it is imminent. We were hoping to time it with our release, but as all big transactions, and particularly with international capital involved, there were some slips across this last week that prevented us from timing it just right.

Across the last month we did increase the deposit to $14 million. And the transaction is now in the stage of just closing on the financing. The slips over time were related to dollar conversion from China. As we had talked about in previous calls and in our discussions with investors, Taikang Insurance and Cinda Asset Management are set up and have a mandate to invest overseas. And so it was never a question of if, but just when. There was a big line of capital that needed to be converted. And with so many trying to get through a tight funnel, there was delays in that.

But we are very close to closing and should be able to release something within the next week or so.

Okay. That's helpful. And I fully understand the challenges of foreign capital getting in the US and the delays that [thrives] across all transactions. So is it safe to say that the buyer now has all their capital in the US and that's no longer the hurdle?

Absolutely. The issues we're going through now are just related to the financing, the debt financing, where we do have some international participants in that line as well.

Okay. That's really helpful. And then, with regards to the financing, I think I missed it, but how much preferred are you guys issuing? And then it sounded like you were issuing preferred at 9% fixed, which was below the pricing for the mezz loan. Was that correct? And if so, how did you think about that? Are you getting any other benefits from issuing the seller financing on the preferred line?

Yes. Ryan, we're issuing $37 million of preferred. And the range will be between $37 million and, say, $40 million, depending on how the transaction is -- it's a fixed 9% coupon. Mezz is at L plus 9, so it's give or take within 50 basis points of mezz. And from our standpoint it was -- with the mezz market being in somewhat of a state of disarray, the capital costs for that [back end] at $40 million would just have become too expensive. We were happy to take the 9% money with the goal that in a few years we would probably finance out of the whole mezz [stack].

Okay, that's helpful. And, Ashish, it's safe to assume that all the capital transactions, both on the preferred issuance side on the JV and the preferred redemption side are incorporated into your guidance?

Yes. Yes. So when I talk about our $10 million EBITDA contribution from the (inaudible) JV, that builds in for this year roughly $2.2 million of EBITDA we would receive from the preferred investment that we make into the venture.

Great. That's helpful. And then, the other thing I wanted to ask you guys about was as we look out it seems like you're obviously assuming RevPAR growth is going to materially reaccelerate. That's always great to hear. I guess one of the questions I had was Manhattan was actually an outperformer for you in the first quarter, which I think is a pleasant surprise as people get worried about New York performance. But you're now reducing your exposure to Manhattan pretty materially.

I'm wondering if the Super Bowl had any material impact in 1Q for you driving your Bay Area hotels up and some of the challenges that you saw in Miami Beach with the renovation at the Convention Center in the first quarter will start to show up later in the year.

How do you think about all those things in terms of driving your outlook for the remainder of the year?

You know, Ryan, in a couple of ways. Let me just take them kind of one at a time.

With Miami we are preparing for a tougher environment in Miami Beach, at least. We have three assets in Miami Beach, one in Coconut Grove, and one in Key West. We continue to have good outlooks on Coconut Grove and Key West. But we do believe that Miami Beach is going to be a more difficult market. We think we won't be faced with this difficult of a comp as we had in the first quarter, so we expect that the year-over-year performance as the quarters go in Miami Beach will actually improve.

In New York City, we are -- the Cindat assets, Cindat seven are great hotels, but they are our lower growth assets in Manhattan. And so the assets that will remain in the comparable portfolio are our more higher growth assets in New York City. And so we do expect that we will continue to be able to produce meaningful growth in New York across this year.

I think the comparables for just by quarter, we had a 9% comp in the first quarter of 2015. And then it drops to a 5.8% comp in second quarter, a 6.9% comp in the third quarter, and a 4% comp in the fourth quarter. We think in the face of these decreasing comparables we should be able to continue to perform and accelerate our performance.

That's thoughtful. And the Bay Area, did the Super Bowl have any material impact on first-quarter results?

On our Sunnyvale asset. Our Sunnyvale asset is a few miles away from Santa Clara. But the East Bay, our East Bay Hyatt Houses, had very negligible impact, if at all. It's quite a distance. And same with Monterrey. Our strength in those areas are a function of good business demand and good, strong extended stay demand.

The TownePlace Suites in Sunnyvale, we've now owned this for about 1.5 quarters. And so we expect to continue to have good growth out of that asset regardless of the Super Bowl, with just our business plan around revenue management and our new sales strategy. For the first time this hotel has a sales person dedicated to the asset on site, and we have started to shift our business from being overly reliant on one or two companies, Apple namely, to spreading the business around to a bunch of other firms that are located also close by the hotel.

And so we're still very positive about Northern California and Southern California. In Southern California we had great performance in LA. We had growth in Santa Barbara, but we expect that that will accelerate as the year goes on.

And in San Diego we had a tough quarter. San Diego as a market was okay. But we're in the Marriott system with our Courtyard there, and the large Marriott Marquis was under renovation, and all of their meeting space was under renovation. So that led the big Marriott to be playing in the same transient and corporate channels that we do at the Courtyard. As that renovation completes we will be able to kind of own that part of the market again. And the convention calendar is looking very strong in San Diego.

So our expectations for our West Coast portfolio remain extremely strong.

Great. That's helpful. And thanks for fielding all those questions. I appreciate it.

Chris Woronka; Deutsche Bank.

Wanted to just go back to that guidance for a moment. I think you mentioned that the $5 million that's coming out in addition to the JV, $2 million is the first quarter and $3 million is the kind of cushion for the rest of the year. Of that, I guess, $3 million cushion for the rest of the year, how do you guys distribute that? Is that a lot of New York or is it a little bit of everything, or something else?

Yes, Chris, it's a little bit of everything but I would say that it's definitely not New York centric. It's more a couple of the markets that we discussed, mainly South Florida. Neil just went through some of the challenges down there. But really other than that, it's just a little bit more spread across. There's no one market outside of that that gives us a lot of concern.

Okay, fair enough. And just to go back to the New York angle, rates down in the quarter obviously not a surprise. We've been seeing it in the numbers. But I guess with -- I want to get an update on your guys' outlook for supply. I know there's about 10,000 rooms in Manhattan under construction. Do you have any conviction that the pricing will stabilize? Or do you underwrite scenarios where it gets worse?

No, our outlook for supply for 2016 and 2017 is around 4%. We started the year with a 4.3% assumption for 2016 supply. We've already brought that down by a few -- by 0.3%, 0.4%, with the delays that we're seeing in construction on several assets. And so, it's meaningful supply but, once again, it's much less than the headline numbers that you might read in the newspaper or even out of some of the other consultants.

The supply picture is getting better. It's tough, but it's getting better. And so our expectation is that we will start getting some rate in New York as the year goes on. We've now had the strong dollar for 18 to 24 months. And so our expectations for this summer is that we'll have a better international contribution than we have in the past, or at least a better rate. And the third and fourth quarter were pretty easy comps for New York City. And so we expect to have some growth this year.

Sure. And just going back to those nine additional suburban assets you've identified for sale, I think you said $150 million to $200 million proceeds. Is there any way to frame a multiple on that or a cap rate or just what the EBITDA contribution was?

Just in terms of our cap rate assumptions for them, they range in that kind of 7.5 to 8 cap range. These nine assets are all being actively marketed right now. And we're starting to have bid dates on several of the assets. One asset is actually already under contract.

We're selling many of them, seven of the nine hotels, as hotels. Two of the assets are being sold, or are being targeted to be sold, to residential/retail developers. In those cases the cap rates will be sub 5. And we have a couple of assets that might have 9 cap kind of ranges on them. But on average I think a 7.5 to 8 cap rate is probably fair.

Okay, great. And then, finally from me, sounds like you've wrapped up the Manhattan renovations for the most part. Looking out for the rest of the portfolio the rest of the year, do you see any more I guess brand-mandated renovations on the horizon? Or was the Hampton stuff kind of the biggest piece?

That was the biggest piece. As the year goes on we're doing some restaurant-related renovations at the Hyatt Union Square and at the St. Gregory Hotel in Washington, DC. As Ash mentioned in his remarks, they're not going to be disruptive on the room side of the business. The brand-mandated kind of refreshes will start to pick back up again next first quarter.

Okay, very good. Thanks, guys.

David Loeb; Baird Investments.

I just wanted to follow up briefly on the first part of Chris's question about the guidance. Ash, you talked about being a little more conservative for the balance of the year. In terms of the RevPAR guidance, should there be some boost that offsets some of that conservatism coming as a result of the Cindat hotels moving into the joint venture?

Yes. As we've mentioned to you, we think -- I think in the last call we mentioned that moving these seven assets should give us about a 50 basis point boost because they are the slower growing part of our Manhattan portfolio. So that should help from a RevPAR perspective.

Obviously, [building] in the first quarter with that boost, we're able to keep the 4% to 6% outlook and we feel pretty good about in that range for the rest of the year.

Okay. And then can you just talk a little bit more about capital allocation? I'm sorry if I missed this earlier in the call, but what are your thoughts going forward for use of proceeds, in addition to the 1031s you've already announced?

We are planning to immediately in May/June pay off our -- $115 million will be deployed to pay off our preferred series, which is paying an 8% coupon. So that will be a very accretive way to reduce some leverage. Overall we're planning out of the $350 million to $360 million in proceeds from the transaction to allocate $250 million for debt paydowns, the preferred as well as just paying down the line.

We will continue to look at acquisition opportunities in the marketplace. There's nothing imminent on the horizon or anything really bubbling up that attractively right now in our pipeline. But we will continue to look for opportunities to acquire hotels like we have across the last six months, assets that are accretive to our cash flow and accretive to our growth rate for the portfolio.

On the buybacks, David, across the first part of this year we've bought back about $10 million of stock, so significantly less than last year. We've wanted to see how -- to really assess the timing of the Cindat transaction and our cash available for being more aggressive in the buyback side. But we have about $63 million left on our authorization. The Board is very comfortable with increasing that authorization when the time comes.

I mentioned in my prepared remarks that the target that we've been using across this year has been kind of a 30% to 35% discount to NAV, being defined as opportunistic. Last year we were using kind of a 20% to 25% discount to NAV. So a little higher hurdle, but something we still continue to believe in and we'll continue to execute.

Okay, great. Thank you.

Wes Golladay; RBC Capital Markets.

You mentioned possibly doing more with your partners overseas, Cindat. Would that be joint venturing other assets in your portfolio, or are you looking at new assets together?

There's other assets -- we've talked about a lot of different opportunities. This venture is set up so that we could take -- we could contribute additional assets to it. And there are some assets in our portfolio that would be a good fit for this existing venture.

We've also discussed other opportunities that have been brought to them or that we've looked at that may not be a good fit for our balance sheet at this time. And so, we're looking and considering a lot of different opportunities with them, but probably most immediately it would be existing assets in our portfolio.

Okay. And would those be mainly the gateway assets, the New York, Miami, maybe Los Angeles, somewhere around that area? Or were they willing to take some of your noncore assets you're looking to sell?

No, it would probably be more Gateway oriented. JFK is a possibility. But generally they're more focused on the gateway markets.

Okay, thanks a lot.

Tayo Okusanya; Jefferies.

Most of my questions actually have been answered, but just given your acquisition outlook right now, could you put some type of probability around you doing more 1031s or you actually paying out proceeds from recent asset sales as a special dividend, and how large that dividend could be?

As far as the capital gains from the Cindat transaction, if we were to deploy in acquisitions, it would be about $110 million. If it was to be a special dividend of cash or stock, it would only be $35 million in order to cover our exposure there.

In terms of probability, we are so close to the ground on our six markets and do get a proprietary kind of pipeline of assets. And I would say that the probability is high that we will be able to find acquisitions for $110 million that allow us to grow our EBITDA while still slightly deleveraging with those acquisitions.

After the day of closing we have 45 days to identify assets and can identify 100 assets around the country, as many as you like. And then you have six months to close on those assets. So in between now and the end of the year, I think it's fairly likely that we will find opportunities. But at this moment, right now, we don't have anything circled or available. And so we feel very good that we don't have a gun to our head in any way and we have the option of doing a special dividend if that makes the most sense at the time.

Got it. Thank you.

Bryan Maher; FBR & Company.

Most of my questions have been answered also. But I do have kind of a bigger picture question. We've heard, as you said earlier in your call, from a lot of companies so far for the quarter. And I guess my question to you is -- and thanks for the commentary on the markets and the regions. But would you put yourselves more for the balance of this year in the Marriott and Hilton optimistic camp, or one of your competitors who was decidedly negative? And I think you guys are straddling somewhere in between. But, could you give us a little commentary on, bigger picture, what you're seeing for the industry for the balance of the year?

I think we are tending more towards the C corp view that's been expressed so far. I think we'll likely see more REITs express that view also as the earnings season continues. I saw quickly [Host] comment that were also pretty constructive.

Our portfolio isn't -- we don't have a significant exposure to San Francisco, which has been a phenomenal market but I think is a market that causes some investors and some managers some concern as the year goes on. The closure of the Moscone Center and just the level of the tech boom in that marketplace I think would make investors a bit concerned.

We've always focused on smaller, newer -built assets that really meet the tastes and preferences of today's travelers. And our portfolio and our markets give us confidence today. We talk a lot about international demand, but by far our greatest contribution is from domestic demand.

And the US economy is in very good shape. You see employment continue to increase. Oil prices haven't been great for the overall stock market, but they are really good for consumers and I think we'll start to see even corporate start to enjoy the benefits of lower energy prices in the coming quarters as well.

The East Coast I think has been challenging relative to the West Coast across the last two, three years, maybe even four years. And we see that with potential to turn as the year keeps going.

We also look just directly at our six markets. If you look at our six markets, the convention calendar in these six markets is very strong across the remainder of this year. And so we're not banking everything on the macro side. The macro side, though, we're definitely coming off the poorest quarter. All expectations are for us to continue to muddle along with 2% to 2.5% GDP growth, as we've had.

But then when we get micro into our markets, we look at the convention calendar, we look at the improvements in international [demand], we look at business plans that we're executing at our properties. We've added five to six properties across the last 12 months, and it takes us 24 to 36 months to execute our business plans. So we're going to have some tailwinds from the revenue management and asset management changes that we've been executing so far.

Thanks. That's very helpful.

That concludes today's question-and-answer session. Neil, at this time I'll turn the conference back to you for any additional or closing remarks.

No, I think that does it. I know that everyone has some other calls to get onto, but it was a pleasure to speak to you all. And we'll be around all day and look forward to hearing from you if we can clarify anything else. Thank you.

This concludes today's conference. Thank you for your participation. You may now disconnect.